Below Consensus Latam Growth, Eurozone Inflation

In Latin America, our growth forecasts are below consensus in a number of economies, including Bolivia, Brazil, Ecuador, Guatemala and Uruguay. The downward revision to our forecast Brazilian real GDP growth rate from 2.5% y-o-y to 1.6% puts us below Bloomberg consensus of 1.8%. The shift reflects lingering investor uncertainty over the upcoming presidential election, as well as the likely collapse in 2Q18 growth due to food and gas shortages stemming from May's ten-day truck driver strike.

Turning to Asia, we highlight below-consensus inflation forecasts in Singapore and New Zealand, against the broad, oil-price driven trend of modestly rising average inflation. In the former, private road transportation and accommodation comprises over a third of the inflation basket and these are likely to remain subdued due to lower car registrations in the passenger vehicle hire space, following the exit of Uber, and an oversupplied private rental residential market, respectively. In New Zealand, the below consensus inflation view is based on a confluence of factors, including a weak economic growth outlook, cooling of the housing market and a slowing of money supply growth, that are offsetting the inflationary impact of higher oil prices.

Our positive outlook on the oil price (where we are firmly above consensus) and higher production is behind our above-consensus forecast on Angolan growth. However, a weak Q118 led us to revise down our growth forecast on South Africa, leading us to be below consensus. Higher oil prices are also behind our above-consensus growth expectations for Kuwait, meanwhile in Qatar, the implementation of a 5% value-added tax in H218 is behind our above-consensus expectation of inflation.

In developed markets, we are above consensus on British pound sterling on the basis that the unit will rally from current levels as latest developments in negotiations around the UK's withdrawal from the EU tend to favour a more market-friendly 'soft-Brexit' scenario. Finally, we remain below consensus on inflation across the major eurozone economies, seeing the recent uptick in headline inflation in France, Germany and Spain as temporary, and driven by higher oil prices.

Below consensus on Brazil growth: Our 2018 real GDP growth forecast for Brazil of 1.6% y-o-y sits below Bloomberg consensus of 1.8%. This is a downward revision from our previous forecast of 2.5%. The negative impact from a ten-day truckers' strike in May, which caused food and gas shortages across the country and undermined economic activity, coupled with lingering investor uncertainty over Brazil's upcoming presidential election, prompted this revision ( see 'Brazil's Rebound Undermined By Weakening Sentiment', June 28).

Above consensus on Mexican FX: We remain above consensus on the Mexican peso, forecasting the unit to end the year at MXN18.40/USD, above Bloomberg consensus of MXN19.70/USD. Despite the weakness in the early months of 2018, we expect the MXN will appreciate in H218. Its fundamentals remain strong, and investor uncertainty will continue to abate following the July 1 election of left-wing populist Andres Manuel Lopez Obrador (AMLO) ( see 'MXN: Modest Appreciation Likely As Sentiment Improves', July 3). The peso has recouped some of its losses in the last few weeks as AMLO has moderated his rhetoric, promising to work with US President Donald Trump on NAFTA renegotiations and to keep fiscal spending restrained.

Below consensus on Brazilian interest rates: We forecast the Banco Central do Brasil (BCB) will hold its policy rate at 6.50% in H218, below Bloomberg expectations of a hike to 6.70%. While recent weakness in the Brazilian real has likely ended the BCB's 18-month rate-cutting cycle, we expect inflation will remain historically low, offsetting the downward external pressure on the real.

AMERICAS - REAL GDP GROWTH AND EXCHANGE RATE

Source: BMI, Bloomberg

2018 Real GDP Growth, %

End 2018 Exchange Rate

Country

BMI

Bloomberg Consensus

Consensus Last Month

Currency

BMI

Bloomberg Consensus

Consensus Last Month

Argentina

1.8

1.8

2.6

ARS/USD

29.26

28.00

24.25

Bolivia

3.7

4.1

4.1

BOB/USD

7.20

-

-

Brazil

1.6

1.8

2.5

BRL/USD

3.60

3.70

3.55

Canada

2.3

2.0

2.1

CAD/USD

1.23

1.29

1.26

Chile

3.5

3.3

3.3

CLP/USD

630.00

628.00

610.00

Colombia

2.6

2.5

2.5

COP/USD

2,910.00

2,890.00

2,840.00

Costa Rica

3.6

3.6

3.4

CRC/USD

575.00

-

-

Ecuador

1.4

1.8

1.4

-

-

-

-

Guatemala

3.1

3.4

3.4

GTQ/USD

7.55

-

-

Mexico

2.3

2.2

2.2

MXN/USD

18.40

19.70

19.05

Panama

5.0

5.0

5.5

-

-

-

Peru

3.9

3.5

3.5

PEN/USD

3.20

3.26

3.26

United States

2.7

2.9

2.8

USD/EUR

1.20

1.19

1.22

Uruguay

2.3

3.0

3.0

UYU/USD

32.00

-

-

Venezuela

-9.1

-9.2

-9.2

-

-

-

-

AMERICAS - INFLATION AND INTEREST RATE

Source: BMI, Bloomberg

2018 Average Inflation, %

End-2018 Policy Interest Rate, %

Country

BMI

Bloomberg Consensus

Consensus Last Month

Country

BMI

Bloomberg Consensus

Consensus Last Month

Argentina

26.1

26.0

23.4

Argentina

35.00

34.10

30.65

Bolivia

3.3

3.4

3.4

Bolivia

-

-

-

Brazil

3.1

3.6

3.3

Brazil

6.50

6.70

6.50

Canada

1.9

2.3

2.3

Canada

1.75

1.65

1.65

Chile

2.4

2.5

2.4

Chile

2.75

2.60

2.65

Colombia

3.4

3.3

3.3

Colombia

4.25

4.20

4.20

Costa Rica

2.6

3.0

3.0

Costa Rica

5.25

5.65

5.65

Ecuador

0.7

0.7

0.9

Ecuador

-

-

-

Guatemala

5.4

3.8

3.8

Guatemala

3.25

-

-

Mexico

4.5

4.3

4.4

Mexico

7.75

7.80

7.45

Panama

1.0

1.4

1.5

Panama

-

-

-

Peru

1.5

1.8

1.8

Peru

2.75

2.70

2.70

United States

2.3

2.6

2.5

United States

2.00

2.40

2.40

Uruguay

7.8

7.0

7.0

Uruguay

-

-

-

Venezuela

105,809.9

7,079.5

7,079.5

Venezuela

-

-

-

Asia: Below Consensus For Singapore & New Zealand Inflation

Below consensus on Singapore inflation: We are below consensus on Singapore's inflation for 2018, with our average forecast coming in at 0.5% versus the Bloomberg consensus of 0.9%. Headline inflation in Singapore remained low, coming in at an average of 0.2% y-o-y for the first five months of 2018 as a result of subdued private road transport and accommodation price inflation (which account for a combined 34.5% of the inflation basket) which came in at 0.0% y-o-y and -3.8% y-o-y, respectively, over the same period. For example, private road transport price inflation, driven primarily by the price of the Certificate of Entitlement (a document mandated by law to purchase a vehicle in Singapore) is likely to remain muted due to lower passenger vehicle registrations in the private car hire space following Uber's exit from the Singapore market in May. Meanwhile, the private residential rental market will likely remain oversupplied, causing accommodation price inflation to remain subdued for the rest of 2018. Combined, these factors are likely to cap upside prices pressures through 2018.

Below consensus on New Zealand inflation: We are below consensus on New Zealand's inflation for 2018, with our average forecast coming in at 1.3% versus the Bloomberg consensus of 1.7%. We expect inflation to be relatively subdued over the coming quarters following the fall in inflation to 1.1% y-o-y in Q118, from 1.6% y-o-y in Q417. Our view is informed by the weak economic growth outlook, cooling housing market, and slowing money supply growth, which are likely to offset the upside price pressures from higher global oil prices. Broad money supply growth has slowed to 7.0% y-o-y in April, from its peak of 9.0% y-o-y in April 2016, on the back of a poor economic growth outlook, which we forecast to slow to 2.7% in 2018, from 3.7% in 2017. Consequently, a poor growth outlook, combined with still-poor housing affordability, also suggest weak demand for completed homes, and this is likely to put downward pressure on property prices over the coming quarters.

ASIA - REAL GDP GROWTH AND EXCHANGE RATE

Source: BMI, Bloomberg

2018 Real GDP Growth, %

End 2018 Exchange Rate

Country

BMI

Bloomberg Consensus

Consensus Last Month

Currency

BMI

Bloomberg Consensus

Consensus Last Month

Australia

2.8

2.8

2.7

USD/AUD

0.75

0.75

0.77

Bangladesh

6.8

6.9

6.9

BDT/USD

86.50

-

-

China

6.5

6.5

6.5

CNY/USD

6.40

6.50

6.36

Hong Kong

4.0

3.6

3.6

HKD/USD

7.82

7.84

7.83

India

7.3

7.4

7.4

INR/USD

69.00

67.50

65.75

Indonesia

5.3

5.3

5.3

IDR/USD

14,000.00

14,153.50

13,825.00

Japan

1.2

1.1

1.2

JPY/USD

108.00

109.00

108.00

Macau

5.0

-

-

MOP/USD

7.99

-

-

Malaysia

5.8

5.5

5.5

MYR/USD

4.20

4.00

3.93

Myanmar

6.9

-

-

MMK/USD

1,388.73

-

-

New Zealand

2.7

2.9

2.9

USD/NZD

0.71

0.70

0.71

North Korea

5.0

-

-

KPW/USD

143.00

-

-

Pakistan

5.4

5.4

5.5

PKR/USD

130.00

-

-

Philippines

6.5

6.7

6.7

PHP/USD

54.00

53.75

52.25

Singapore

3.0

3.1

3.1

SGD/USD

1.28

1.34

1.30

South Korea

3.0

2.9

2.9

KRW/USD

1,070.00

1,103.00

1,060.00

Sri Lanka

4.2

4.6

4.5

LKR/USD

161.00

-

-

Taiwan

2.5

2.7

2.7

TWD/USD

29.50

30.30

29.45

Thailand

4.2

4.2

4.2

THB/USD

32.00

32.50

31.50

Vietnam

6.9

6.8

6.7

VND/USD

23,000.00

22,900.00

22,760.00

ASIA - INFLATION AND INTEREST RATE

Source: BMI, Bloomberg

2018 Average Inflation, %

End-2018 Policy Interest Rate, %

Country

BMI

Bloomberg Consensus

Consensus Last Month

Country

BMI

Bloomberg Consensus

Consensus Last Month

Australia

2.1

2.2

2.2

Australia

1.50

1.55

1.55

Bangladesh

5.8

5.8

5.8

Bangladesh

6.75

-

-

China

1.9

2.1

2.2

China

4.35

-

-

Hong Kong

1.7

2.3

2.4

Hong Kong

1.63

-

-

India

5.0

4.7

4.7

India

6.50

6.45

6.25

Indonesia

3.7

3.5

3.5

Indonesia

5.50

5.10

4.70

Japan

1.2

1.0

1.0

Japan

-0.10

0.00

0.00

Macau

3.0

-

-

Macau

-

-

-

Malaysia

2.6

2.5

2.6

Malaysia

3.25

3.30

3.30

Myanmar

6.0

-

-

Myanmar

-

-

-

New Zealand

1.3

1.7

1.8

New Zealand

1.75

-

-

North Korea

-

-

-

North Korea

-

-

-

Pakistan

6.0

4.9

5.0

Pakistan

6.50

-

-

Philippines

4.4

4.4

4.3

Philippines

3.75

3.70

3.55

Singapore

0.5

0.9

0.9

Singapore

2.00

-

-

South Korea

2.0

1.8

1.8

South Korea

1.75

1.75

1.75

Sri Lanka

4.3

4.5

5.0

Sri Lanka

8.50

-

-

Taiwan

1.8

1.5

1.3

Taiwan

1.38

1.50

1.60

Thailand

1.7

1.3

1.2

Thailand

1.75

1.65

1.60

Vietnam

3.7

3.8

3.8

Vietnam

6.25

6.30

6.30

Europe: Above Consensus On Sterling And Interest Rates In Turkey

Above Consensus GBP and RUB: We remain above consensus on the British pound sterling, forecasting the unit to end the year at USD1.43/GBP, relative to a Bloomberg consensus estimate of USD1.35/GBP. That said, following the recent intensification in political noise around Brexit we see rising downside risks to our forecasts. We will closely watch developments in the coming days and will revise our forecasts accordingly. Following a sell-off in the Russian rouble in April, prompted by the tightening of US sanctions, we see scope for the currency to regain some ground in the months ahead, supported by further oil price rises. We forecast the currency to end 2018 at RUB61.00/USD, which is slightly more bullish than the Bloomberg consensus of RUB62.39/USD.

Above Consensus Turkish and Ukrainian Interest Rates: After two consecutive hikes within fifteen days by the Central Bank of the Republic of Turkey (CBRT), and a simplification of the monetary policy system, we expect the CBRT to hike by another 125 basis points (bps) to 19.0% this year. The additional round of hikes will ease investor nerves and stem inflationary pressures to support the Turkish lira. If the CBRT fails to convince markets that it is determined to rein-in surging inflation, then another rout of Turkish assets would likely ensue. In Ukraine, persistent inflationary pressures will prevent the Ukrainian National Bank (NBU) from cutting rates this year. We therefore expect inflation to begin declining in H218, but only at a gradual pace.

Below Consensus Romanian Growth: Following stellar Romanian growth in 2017, and a softer 1Q18, we project economic activity to slow down significantly in the remainder of the year. Slower growth will be the result of a weaker external outlook and dampened domestic demand as a result of higher inflation and a much more prudent mix of fiscal consolidation and monetary tightening. We forecast real GDP growth to average 4.2% in 2018 - below the Bloomberg consensus estimate of 4.5% for the year - and down from 6.9% in 2017. Our expectation of a sizeable slowdown is further strengthened by the economy's sluggish start to 2018.The GDP reading came in at 4.2% year-on-year (y-o-y) in Q118, down from 6.6% on the previous quarter, and marking the steepest growth decline in the Central and Eastern European region.

EUROPE - REAL GDP GROWTH AND EXCHANGE RATE

Source: Bloomberg, BMI

2018 Real GDP Growth, %

End 2018 Exchange Rate

Country

BMI

Bloomberg Consensus

Consensus Last Month

Currency

BMI

Bloomberg Consensus

Consensus Last Month

Austria

2.2

2.7

2.7

USD/EUR

1.20

1.19

1.22

Azerbaijan

1.7

1.8

1.8

AZN/USD

1.80

-

-

Belarus

3.7

2.6

2.5

BYR/USD

2.10

-

-

Belgium

1.6

1.7

1.8

USD/EUR

1.20

1.19

1.22

Croatia

2.7

2.8

2.8

HRK/USD

6.19

-

-

Czech Republic

3.6

3.5

3.5

CZK/EUR

25.00

25.25

25.10

Denmark

2.1

2.0

2.0

DKK/USD

6.21

6.27

6.19

Eurozone

2.0

2.2

2.3

USD/EUR

1.20

1.19

1.22

Finland

2.5

2.5

2.5

USD/EUR

1.20

1.19

1.22

France

1.9

1.9

2.0

USD/EUR

1.20

1.19

1.22

Germany

2.0

2.1

2.3

USD/EUR

1.20

1.19

1.22

Greece

1.8

2.0

2.0

USD/EUR

1.20

1.19

1.22

Hungary

4.0

3.9

3.9

HUF/EUR

314.00

319.50

314.00

Ireland

5.4

5.3

4.3

USD/EUR

1.20

1.19

1.22

Italy

1.2

1.3

1.4

USD/EUR

1.20

1.19

1.22

Kazakhstan

3.6

3.7

3.5

KZT/USD

325.00

324.00

324.00

Luxembourg

3.1

3.5

3.5

USD/EUR

1.20

1.19

1.22

Netherlands

2.4

2.7

2.7

USD/EUR

1.20

1.19

1.22

Norway

2.1

2.4

2.3

NOK/USD

7.67

7.89

7.64

Poland

3.9

4.4

4.2

PLN/EUR

4.20

4.29

4.23

Portugal

2.3

2.2

2.2

USD/EUR

1.20

1.19

1.22

Romania

4.2

4.5

4.5

RON/EUR

4.66

4.70

4.67

Russia

1.9

1.8

1.8

RUB/USD

61.00

62.39

60.50

Slovakia

3.7

3.8

3.7

USD/EUR

1.20

1.19

1.22

Spain

2.7

2.8

2.7

USD/EUR

1.20

1.19

1.22

Sweden

2.7

2.6

2.6

SEK/USD

8.33

8.51

8.36

Switzerland

2.0

2.1

2.1

CHF/USD

1.03

0.99

0.98

Turkey

5.5

4.2

4.2

TRY/USD

4.60

4.60

4.51

Ukraine

3.4

3.1

3.0

UAH/USD

29.00

29.00

29.00

United Kingdom

1.4

1.3

1.4

USD/GBP

1.43

1.35

1.38

Uzbekistan

8.8

-

-

UZS/USD

8,250.00

-

-

EUROPE - INFLATION AND INTEREST RATE

Source: Bloomberg, BMI

2018 Average Inflation, %

End-2018 Policy Interest Rate, %

Country

BMI

Bloomberg Consensus

Consensus Last Month

Country

BMI

Bloomberg Consensus

Consensus Last Month

Austria

2.4

2.1

2.1

Austria

0.00

0.00

0.00

Azerbaijan

5.1

4.8

5.8

Azerbaijan

9.00

-

-

Belarus

4.3

6.0

6.0

Belarus

10.00

-

-

Belgium

2.3

1.7

1.7

Belgium

0.00

0.00

0.00

Croatia

1.9

1.6

1.6

Croatia

3.00

3.00

3.00

Czech Republic

2.2

2.1

2.1

Czech Republic

1.25

1.15

1.10

Denmark

1.3

1.0

1.0

Denmark

0.00

-0.65

-0.65

Eurozone

1.5

1.6

1.5

Eurozone

0.00

0.00

0.00

Finland

1.4

1.0

1.0

Finland

0.00

0.00

0.00

France

1.4

1.8

1.6

France

0.00

0.00

0.00

Germany

1.7

1.8

1.7

Germany

0.00

0.00

0.00

Greece

1.1

0.9

0.9

Greece

0.00

0.00

0.00

Hungary

2.8

2.6

2.6

Hungary

0.90

0.90

0.90

Ireland

0.8

0.8

1.1

Ireland

0.00

0.00

0.00

Italy

1.7

1.2

1.2

Italy

0.00

0.00

0.00

Kazakhstan

6.6

6.3

6.2

Kazakhstan

8.75

-

-

Luxembourg

1.7

1.5

1.5

Luxembourg

0.00

0.00

0.00

Netherlands

1.4

1.5

1.5

Netherlands

0.00

0.00

0.00

Norway

1.8

2.1

2.0

Norway

0.75

0.75

0.70

Poland

2.1

1.9

2.0

Poland

1.50

1.50

1.55

Portugal

1.6

1.3

1.4

Portugal

0.00

0.00

0.00

Romania

4.7

4.5

4.5

Romania

3.00

2.90

2.85

Russia

2.9

2.9

2.9

Russia

7.00

7.10

6.80

Slovakia

2.1

2.3

2.2

Slovakia

0.00

0.00

0.00

Spain

1.3

1.6

1.5

Spain

0.00

0.00

0.00

Sweden

1.8

1.9

1.9

Sweden

-0.50

-0.35

-0.40

Switzerland

0.8

0.8

0.8

Switzerland

-0.75

-0.70

-0.70

Turkey

11.5

11.7

11.0

Turkey

19.00

13.55

9.55

Ukraine

11.9

11.5

11.3

Ukraine

17.00

15.55

14.20

United Kingdom

2.4

2.5

2.5

United Kingdom

0.75

0.75

0.70

Uzbekistan

13.0

-

-

Uzbekistan

14.00

-

-

Middle East And North Africa: Bullish On Kuwaiti Growth

Above consensus on Kuwaiti growth: The rally in oil prices in recent months has led us to revise our forecast for Kuwait's real GDP growth from 1.9% to 2.4% for 2018, placing us significantly above Bloomberg consensus of 1.9%. Higher Brent prices - forecast by our Oil & Gas team to rise from an average USD54.7 per barrel (/bbl) in 2017 to USD73.0/bbl in 2018, above Bloomberg consensus of USD70.0/bbl - will boost state revenues, in turn encouraging an uptick in government spending. More broadly, this dynamic will contribute to confidence gains in the wider economy, encouraging investment and consumption. We also highlight further upside risk to our current forecasts, presented by the possibility that OPEC may further loosen supply constraints this year in an effort to ease the effect on price levels of Iranian barrels (subject to US sanctions) coming off the market and Venezuela experiencing large output declines.

Above consensus on Qatari inflation: We forecast inflation to average 2.6% in Qatar in 2018, significantly above Bloomberg consensus of just 1.5%. The difference can largely be explained by the fact that we are factoring in the implementation of a 5.0% value-added tax in H218. Given the Qatari government's insistence, during its latest round of talks with the IMF, that the implementation would proceed as scheduled, we continue to price in inflationary effects in the last months of the year - though we do note substantial risks of a delay, as preparation appears to still be ongoing. Meanwhile, the aforementioned oil price gains in H118 also help explain our above-consensus view: these gains will affect transport and input costs, and fuel demand-pull inflation given that oil prices also remain a key determinant of confidence and growth in the Qatari economy. Finally, we highlight that the inflationary effects of the housing market correction seen over 2017 appear to be waning, further easing downside pressure on prices.

MIDDLE EAST AND NORTH AFRICA - REAL GDP GROWTH AND EXCHANGE RATE

Source: Bloomberg, BMI

2018 Real GDP Growth, %

End 2018 Exchange Rate

Country

BMI

Bloomberg Consensus

Consensus Last Month

Currency

BMI

Bloomberg Consensus

Consensus Last Month

Algeria

3.5

-

-

DZD/USD

120.00

-

-

Egypt

4.8

4.8

4.7

EGP/USD

17.50

17.00

17.00

Iran

2.7

-

-

IRR/USD

43,000.00

-

-

Iraq

2.2

-

-

IQD/USD

1,176.00

-

-

Israel

3.6

3.5

3.5

ILS/USD

3.40

3.60

3.52

Kuwait

2.4

1.9

1.9

KWD/USD

0.32

-

-

Lebanon

2.3

1.9

2.0

LBP/USD

1,530.00

-

-

Libya

17.7

-

-

LYD/USD

2.50

-

-

Morocco

3.6

3.2

3.2

MAD/USD

9.20

-

-

Oman

2.8

2.8

2.4

OMR/USD

0.38

-

-

Qatar

2.6

2.9

2.8

QAR/USD

3.64

3.64

3.64

Saudi Arabia

1.6

1.6

1.5

SAR/USD

3.75

3.75

3.75

Tunisia

2.6

2.5

2.7

TND/USD

2.75

-

-

United Arab Emirates

2.9

2.5

2.8

AED/USD

3.67

3.67

3.67

MIDDLE EAST AND NORTH AFRICA - INFLATION AND INTEREST RATE

Source: Bloomberg, BMI

2018 Average Inflation, %

End-2018 Policy Interest Rate, %

Country

BMI

Bloomberg Consensus

Consensus Last Month

Country

BMI

Bloomberg Consensus

Consensus Last Month

Algeria

5.9

-

-

Algeria

4.00

-

-

Egypt

15.2

13.3

15.0

Egypt

15.75

-

-

Iran

10.5

-

-

Iran

-

-

-

Iraq

1.2

-

-

Iraq

4.00

-

-

Israel

0.7

0.9

0.8

Israel

0.10

0.15

0.15

Kuwait

1.2

2.0

2.1

Kuwait

3.50

-

-

Lebanon

4.8

4.2

4.0

Lebanon

10.50

-

-

Libya

23.0

-

-

Libya

3.00

-

-

Morocco

2.1

1.8

1.8

Morocco

2.50

-

-

Oman

1.3

1.3

2.0

Oman

2.50

-

-

Qatar

2.6

1.5

2.0

Qatar

5.50

-

-

Saudi Arabia

3.3

3.5

3.4

Saudi Arabia

2.25

-

-

Tunisia

5.8

6.2

5.0

Tunisia

7.25

-

-

United Arab Emirates

3.3

3.5

3.2

United Arab Emirates

2.50

-

-

Above Consensus On Angolan Growth, Below On South Africa's

Above Consensus On Angolan Growth: Our forecast for real GDP growth in Angola is for 2.8% as opposed to growth of 2.1% according to consensus and we believe that our higher forecast is down to our positive outlook for oil prices and production. Our Oil and Gas team expect that oil production will increase by 8.2% in 2018 after two years of contraction, due to the Kaombo oil field being brought online, increasing output from the economy's largest sector. A major headwind to business has been the difference between the official rate for the kwanza and the parallel market rate, as lower oil prices in recent years have seen the parallel exchange rate weaken considerably, reducing currency inflows. Increasing oil prices will drive up the value of the parallel currency and will therefore bolster access to much needed hard currency inflows (allowing businesses that had temporarily shuttered during 2015/16 to resume operations) and will also see fiscal revenues rise considerably. The boost in revenues will facilitate government spending on a series of projects, notably the Luanda international airport and a series of hydroelectric power projects. We also maintain that moves towards economic reforms will drive an increase in investment which will further spur growth, with the government reducing the size of the public sector and streamlining investment procedures.

Below Consensus On South Africa Growth: After a weak Q118, we have revised down our real GDP growth forecast for South Africa, pushing our projections below consensus. After real GDP growth of 1.3% in 2017, we forecast growth of 1.3% in 2018 compared to the 1.6% consensus forecast. After booming growth in 2017, the agribusiness sector is likely to act as a drag throughout much of 2018. Moreover, the labour-intensive mining and manufacturing industries also look set for a weak performance, especially in H118. While the new mining charter in South Africa is more investor friendly, it has yet to be finalised, suggesting that investment into the mining sector will be gradual at best. At the same time, still weak business confidence - due both to concerns over the direction of the domestic economy and global trade tensions - will inhibit a more significant pick up in industrial activity.

SUB-SAHARAN AFRICA - REAL GDP GROWTH AND EXCHANGE RATE

Source: Bloomberg, BMI

2018 Real GDP Growth, %

End 2018 Exchange Rate

Country

BMI

Bloomberg Consensus

Consensus Last Month

Currency

BMI

Bloomberg Consensus

Consensus Last Month

Angola

2.8

2.1

2.1

AOA/USD

270.00

-

-

Botswana

4.5

-

-

BWP/USD

9.64

-

-

Cameroon

4.8

-

-

XAF/USD

546.63

-

-

Congo (DRC)

2.8

-

-

CDF/USD

2,092.93

-

-

Congo-Brazzaville

1.2

-

-

XAF/USD

546.63

-

-

Cote dIvoire

7.1

-

-

XOF/USD

546.63

-

-

Equatorial Guinea

-6.7

-

-

XAF/USD

546.63

-

-

Ethiopia

7.5

-

-

ETB/USD

28.90

-

-

Gabon

0.7

-

-

XAF/USD

546.63

-

-

Ghana

7.4

7.2

7.2

GHS/USD

4.55

4.55

4.55

Kenya

5.4

5.5

5.5

KES/USD

103.50

104.00

104.00

Mozambique

3.6

-

-

MZN/USD

65.00

-

-

Nigeria

3.2

2.6

2.6

NGN/USD

305.00

365.45

365.45

South Africa

1.3

1.6

2.0

ZAR/USD

14.00

13.04

12.56

South Sudan

4.2

-

-

SSP/USD

148.00

-

-

Sudan

0.6

-

-

SDG/USD

31.00

-

-

Tanzania

6.6

-

-

TZS/USD

2,346.36

-

-

Uganda

6.3

-

-

UGX/USD

3,850.00

-

-

Zambia

4.4

-

-

ZMK/USD

10.20

-

-

Zimbabwe

1.9

-

-

-

1.00

-

-

SUB-SAHARAN AFRICA - INFLATION AND INTEREST RATE

Source: Bloomberg, BMI

2018 Average Inflation, %

End-2018 Policy Interest Rate, %

Country

BMI

Bloomberg Consensus

Consensus Last Month

Country

BMI

Bloomberg Consensus

Consensus Last Month

Angola

22.0

21.8

21.8

Angola

19.00

-

-

Botswana

4.1

-

-

Botswana

5.00

-

-

Cameroon

1.9

-

-

Cameroon

2.95

-

-

Congo (DRC)

28.8

-

-

Congo (DRC)

14.00

-

-

Congo-Brazzaville

2.4

-

-

Congo-Brazzaville

2.95

-

-

Cote dIvoire

1.8

-

-

Cote dIvoire

5.00

-

-

Equatorial Guinea

4.0

-

-

Equatorial Guinea

5.50

-

-

Ethiopia

13.5

-

-

Ethiopia

-

-

-

Gabon

3.0

-

-

Gabon

2.95

-

-

Ghana

10.0

9.3

9.7

Ghana

16.00

16.25

16.20

Kenya

6.4

5.5

5.1

Kenya

9.00

9.05

8.85

Mozambique

4.2

-

-

Mozambique

15.50

-

-

Nigeria

12.5

12.3

12.3

Nigeria

12.00

11.60

11.85

South Africa

4.7

4.9

5.0

South Africa

6.50

6.50

6.50

South Sudan

90.0

-

-

South Sudan

-

-

-

Sudan

50.0

-

-

Sudan

-

-

-

Tanzania

5.5

-

-

Tanzania

6.00

-

-

Uganda

3.5

3.9

3.9

Uganda

9.00

-

-

Zambia

7.5

-

-

Zambia

9.75

-

-

Zimbabwe

3.7

-

-

Zimbabwe

-

-

-

Commodities: Below Consensus, Except For Oil

Consensus has continued to turn increasingly bullish on the commodity complex in July, while our outlook on commodities remains mostly neutral for now, with the exception of oil. We have made another significant upward revision to our oil price forecast in July and remain firmly above consensus as measured by Bloomberg for both Brent and WTI. We are in line with consensus on metal prices with the exception of iron ore and gold, two commodities for which we hold a below consensus view. Regarding grains, we have closed our H118 positive view on the complex in June and are now below consensus.

Oil: Revising Up Our Forecast And Remaining Firmly Above Consensus - We have revised up our oil price outlook this month, forecasting an annual average for Brent of USD75.0/bbl for 2018 and USD80.0/bbl for 2019. This compares to our previous forecast of USD73.0/bbl and USD78.0/bbl, respectively. The revision is being driven by the supply side, as we factor in the impact of the US' decision to re-impose secondary sanctions on Iran, renewed global supply outages and shrinking spare capacity. The decision by OPEC+ to begin returning cut barrels to the market and emergent headwinds for demand have prevented a larger hike in the forecast. We have held an above consensus view on 2018 oil prices ever since October 2017 and this view has played out well so far.

Gold: Remaining Below Consensus - As trade tensions between the US and China are escalating, upside risks to gold prices are mounting. Nevertheless, without an actual fully-fledged trade war, gold prices will remain directly influenced by the US dollar's performance in the coming months. Rising US real interest rates will continue pressuring gold prices, reducing the attractiveness of holding gold as an investment. We remain below consensus on prices.

Metals: Generally In Line With Consensus, Except For Iron Ore - We are close to consensus on most metals, with the exception of ferrous metals on which we hold a below consensus view, despite an upward revision to both iron ore and steel prices in May-June.

Agriculture: Now Below Consensus On Grains - Our grains 2018 price forecast have remained unchanged since September 2017. In line with our positive view on grain prices in H118 as compared with December 2017 spot levels, grains have been relatively strong in first half of the year. We have closed this view in June as risks to prices are now skewed to the downside amidst the return to normal weather and trade conflict impacting demand for grains (see 'Commodities Mid-Year Update: Key Themes For 2018', June 14). We are now below consensus as compared with Bloomberg, after being above consensus over most of H118.